The end of May brought another positive headline for Palantir (NYSE:PLTR). The big data analytics company inked a $111 million follow-up contract with the United States Special Operations Command (USSOCOM). However, despite this news, the recent performance of PLTR stock has not been impressive.
If you’re offended by Palantir’s business model, then that’s another conversation. For example, I understand that Palantir provides products for Immigration and Customs Enforcement (ICE), which uses the company’s software to plan its raids.
So I can understand why some investors have issues with PLTR stock. However, if you can look past that, Palantir is a great investment.
Investors should understand that the company is not a one-trick pony. Although the bulk of its contracts are with the U.S. government, it has also built an impressive commercial business side that will only grow going forward. Besides, the infrastructure it is creating will be used a great deal in the future. Our very own Luke Lango reported on all of the exciting developments involving Palantir in a fascinating piece.
All things considered, whenever PLTR stock drops a bit, I encourage investors to buy more of it.
Can PLTR Stock Climb Further?
Palantir has handsomely rewarded its early backers.
The big data analytics company made its debut on the public markets last September, 17 years after it was created. Palantir’s shares opened at $10 and closed Friday at just over $24. That’s not a bad gain, when everything is said and done.
However, after such a strong surge, many investors wonder if the shares can climb further. Could it be better for investors to take their profits on Palantir and buy other stocks? Actually, PLTR stock still has a lot to offer, despite its bull run.
The stock has actually tumbled around 35% since Feb. 12. That weakness has created a good buying opportunity.
Palantir’s shares are attractive because it is working on technologies that are changing the way companies do business. It has two operating segments: commercial and government.
Its Gotham platform has generated the most buzz. Used by analysts at defense and intelligence agencies, it allows users to identify patterns hidden within datasets. Palantir’s commercial customers use its Foundry software platform to integrate and analyze their data.
Both of these segments have won their fair share of clients. But Gotham has delivered the bulk of the major wins.
Among its major deals are a contract worth north of $800 million to build the U.S. Army’s next-generation battlefield software system, a $31.5 million, two-year agreement with the UK’s national health insurance systems to help tackle the novel-coronavirus pandemic and a $44.4 million contract with America’s Food and Drug Administration.
On the commercial side, Palantir has partnerships with Amazon (NASDAQ:AMZN), IBM (NYSE:IBM) 3M (NYSE:MMM), BP (NYSE:BP), mining company Rio Tinto (NYSE:RIO), and electric utility Pacific Gas and Electric Co. (NYSE:PCG)
Its customer base is continuously growing.
Palantir’s Fundamentals Are Improving
Palantir has not reported many of its quarterly results. But the earnings it has unveiled have not been that bad. In the last three quarters, the company has managed to beat analysts’ average expectations each time.
Palantir expects its sales to climb 43% year-over-year in Q2. In the first quarter, however, its revenue increased 49% YOY to $341 million.
In Q1, its U.S. government revenue jumped 83% YOY and its sales to U.S. businesses increased 72%. Nevertheless, because its stock-based compensation tripled last quarter, the company reported a higher-than-expected Q1 loss of 7 cents per share.
Palantir has maintained its forecast for annual revenue growth of 30% or more through 2025. According to Refinitiv, analysts, on average, expects its sales to increase 34.9% and 74.7%, respectively, in fiscal 2021 and 2022. As long as Palantir can keep a lid on costs, it should do well moving forward.
Palantir Is a Safe Investment
One can understand the skeptics’ view of Palantir. Its shares are priced to perfection, and at such high multiples, it is tough to advocate buying PLTR stock.
However, investors have to take the big picture into account. The company is expanding at a brisk pace, signing massive contracts every quarter. Moreover, it has an asset-light business model that is tailor-made for the future economy.
Considering its momentum and the strength of its partnerships, Palantir looks poised to break out soon and reach new highs. Its long-term trajectory is onward and upward.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.